Originally published on Forbes.com.
The Tax Court is letting us down when it comes to electronic transparency. Public documents, such as briefs and petitions, that are readily available from other federal courts are effectively inaccessible to those of us who don’t live or work in the nation’s capital. And maybe the IRS and even some law firms like it that way. Rather than write about this abstractly, I would like to show it to you as we go along. I’m going to use a decision I recently blogged about – an important hobby loss case (Section 183).
Big Win For Taxpayers Needs To Be Studied
Finis R. Welch and Linda J. Waite were before the Tax Court on a multi-million dollar hobby loss case – Section 183. They won a stunning victory. Hobby loss comes up a lot and practitioners will want to study that decision in detail. And not just high priced attorneys. Run of the mill tax planners and preparers, like me, will want to use it to help their clients be prepared for an audit. And if there is an audit, they will shake it in front of the arrogant revenue agent who doubts that the client’s dog breeding business is really a business. And use it when they end up in appeals, which is as far as a CPA or EA (enrolled agent) can go with it. And then there are the tax bloggers. We’re just nosy, but nosy people have rights too.
And thanks to the Tax Court’s electronic system, the decision is very easy to get. You have to give the Tax Court credit for that. Just go to www.ustaxcourt.gov. You’ll see a tab called labeled “Opinion Search”. Put “Welch” in the case name keyword box. There are eight results, but you can look at the column in the far right to see that the fourth one down is the only decision during this decade. You click and there you are with the decision. Quite frequently it will be easier to find a decision with a google search or google scholar, but going to the court’s website is more of a sure thing.
To get a copy of a decision straight from the horse’s mouth is harder when it comes to the rest of the federal judiciary. You have to go to www.pacer.gov (Public Access to Court Electronic Records). There is a registration process. And here is there really horrible thing. I mean really, really horrible. It’s not free. I was really gobsmacked by my last quarterly PACER bill. It was over one hundred dollars. I actually don’t use PACER to get texts of decision though. You can usually get them some other way that is free. But PACER provides a lot more than decisions and that is where it outshines the Tax Court, which may be the only federal court that is not on PACER (Checking that is a little beyond the scope of this piece. All the district and appellate courts are there anyway.) That’s why I am willing to spend the big bucks on PACER.
The Process
We’ll go back to the free Tax Court site to show you the difference. If you look at the decision, we just pulled up you will see that it is Docket No. 20611-12. Here is the deal. Nobody gets dragged in front of the Tax Court. It is an option that taxpayers have. There are things that can go before the Tax Court besides income tax deficiencies (e.g. denial of exempt status, outcome of a collection due process hearing), but let’s just talk about income tax deficiencies to keep it simple. When you and the IRS have gone through an audit and possibly an appeal and have agreed to disagree, you will get a statutory notice of deficiency. It is called a 90-day letter, because, if you want to avail yourself of the Tax Court, which lets you litigate the tax without first paying it, you have to file a petition within ninety days. There is very little, almost no, slack in that deadline, so you really should make believe it is 75 days and use the U.S. Mail with return receipt and proof of mailing.
When the Tax court gets the petition it assigns a docket number to the case. The Finis Welch docket number was 20611-12. The last two digits indicate the year, the first five are assigned sequentially. The Tax Court dockets about 30,000 cases a year. As you would expect the Finis Welch case was docketed in August 2012. If you go to the tab labeled Docket Inquiry and select docket number and put in 20611-12, it will bring you here to the first of four pages that list out documents related to the case. The decision is the very last entry on page 4 and you can see in the fourth column a link – – that will bring you there.
Here is the big difference between the Tax Court and PACER. In PACER, almost all the docket entries will have a link like that. In the Tax Court, most of them do not. It is N/A. Is that because those documents are not public? It is not. They are mostly public documents. But to get at them you literally have to go to the Tax Court courthouse in Washington. Here is the rule
(b) Limitations on Remote Access to Electronic Files: Except as otherwise directed by the Court, access to an electronic file is authorized as follows: (1) The parties and their counsel may have remote electronic access to any part of the case file maintained by the Court in electronic form; and (2) any other person may have electronic access at the courthouse to the public record maintained by the Court in electronic form, but may have remote electronic access only to: (A) The docket record maintained by the Court; and (B) any opinion, order, or decision of the Court, but not any other part of the case file.
In other words, if you are not involved in the case and you want electronic access, you have to go to Washington DC.
No Problem For The Big Guys
I was talking to a top-notch Tax Court litigator, who prefers to remain off the record like a couple of other attorneys I spoke with. As we were discussing this issue, I mentioned the Welch cases. He told me that he will be reading the briefs filed by the winning attorneys and also the IRS briefs to get a sense of what their position will be and figure out the weaknesses. He told me a story about another big case that his firm had worked that had a lot of parallel cases on the same issue and how being able to read the other briefs was very valuable. The briefs are not available electronically. Nor is the petition which I would be interested in to understand the numbers better. Very few of the few docket entries other than the decision that are available electronically are of much interest. For example, there is the order reassigning the case from Judge Kroupa, who retired, to Judge Paris and an order setting the time and date of a hearing.
Attorney Top Notch wants to read those briefs. Whatever will he do? He will call his firm’s Washington office, which will detail a paralegal or an intern to trot over to the Courthouse and get copies. Somebody told me there is a per page charge, but I have not looked into that. Regardless, for a large law firm with a Washington office, it is easy peasy. It probably costs the client a few hundred bucks, but so it goes.
Who Cares?
Initially, I thought there were only three guys who cared about this. That would be me, Lew Taishoff and Paul Streckfus. Mr. Taishoff blogs the Tax Court with an incredible intensity. He and I had lunch a couple of weeks ago, the first time I have met with a blogging buddy in meatspace. Our conversation ranged over a variety of topics including the Vietnam War which Mr. Taishoff found waiting for him when he graduated from law school and what a great city New York is. Tax Court transparency was one of the items. Mr. Taishoff ceded coverage of the issue to me. Mr. Taishoff and I are both kind of annoyed by the lack of transparency, but we both have a lot of material to work with already. So for us it is really the principle of the thing.
Paul Streckfus. editor of the EO Tax Journal has a more serious concern. He wrote me on the policy of not allowing remote access.
The result is that most Tax Court filings, which are public documents, never see the light of day. What especially irks me is that we do not see briefs filed by the IRS in Tax Court cases, briefs that often contain information regarding how the IRS is interpreting Code provisions, whether the IRS is conceding positions and points of law, etc.
Also, we do not even know what cases have been filed in Tax Court. There is no public listing that I am aware of, even though EO cases are marked with an X at the end of their case number, which makes them stand out from the thousands of income tax cases files.
It is part of a broader concern he has with “secret law” that is evidenced in stipulated decisions like this one. Then there is the Tax Exempt & Government Entities Divisions (referred to as EO) no longer issuing revenue rulings that explain its thinking.
The lack of EO revenue rulings over the last twenty-plus years has been a great loss. We now have so much secret law within EO. Revenue rulings are one way to expose to sunlight both favorable rulings (which we see in heavily redacted form) and unfavorable rulings (which we rarely see, since the ruling requests are usually withdrawn prior to issuance). The Office of Associate Chief Counsel (TE/GE) should return to the former EO Division practice of converting private letter rulings into published revenue rulings, as well as publishing the resolution of many issues that are handled without precedential guidance during EO audits — in effect, done sua sponte.
In a report on the Academy of America in EO Tax Journal 2016-20 he noted
This has been one of the worst aspects of the IRS’s administration of EO tax law over the last several years. Cases with significant issues are routinely settled, often on very favorable terms to Petitioners lucky enough to afford counsel. Thanks to the Office of Chief Counsel these savvy attorneys can manipulate the system to their clients’ benefit while the rest of us are left in the dark as more secret law is being created.
Who Else Cares?
Keith Fogg is the Director of Federal Tax Clinic, Legal Services Center Harvard Law School. He was kind enough to put out a request for comments on this matter on Procedurally Taxing. So far I have heard from Charles Schreiber CPA
I believe in transparency. All documents filed with the Court should be available in the docket view. Artificial Intelligence at this point is far enough advanced that such documents can be electronically redacted to remove social security numbers, account numbers and addresses.
Saying documents are available by visiting the Tax Court, but not on line, is not appropriate for 2017.
The People’s Court
I have characterized Tax Court summary opinions as being better than reality TV. If you represent yourself, it is pretty easy to get into Tax Court. They tell you how to do it with the notice of deficiency that is your ticket to Tax Court. You just need to follow Reilly’s Seventh Law of Tax Planning – RTFI – Read the Instructions. Doing it right is another matter and having petitions and briefs readily available would probably be a real benefit to the self-help crowd. Ironically, it is those folks that the Tax Court says it is concerned about in making it hard to get at those documents, which are in fact public. This is from a 2008 press release
The Court has considered the privacy and security issues raised by providing public online access to electronic records in the particular context of a Court whose docket consists solely of Federal tax cases and approximately 75 percent of whose petitioners are pro se individuals, and whether it is unrealistic to expect those pro se individuals to file case documents in a manner that adequately protects their privacy and security interests. Court documents can include a great deal of personal information in addition to Social Security numbers and tax information, such as financial account numbers, property descriptions and addresses, names and birth dates of minor children, employment information, medical and health information, and original signatures. The information most often will relate to petitioners but can also relate to witnesses and other third parties.
I have to have some sympathy with that argument. I have even adopted its spirit on this platform When a case strikes me as being embarrassing to otherwise low profile taxpayers – innocent spouse cases and fights over dependency deductions come to mind – I will change the names. There are some cases that as far as I can tell are only covered by me and Lew Taishoff, so that might be of some help.
I think the Tax Court takes the argument further than it should. In order to protect unsophisticated pro se supplicants against failing to redact, it is effectively shielding public documents prepared with the advice of sophisticated law firms. I don’t know if Mr. Schreiber is right about AI being able to do the redaction. What would be feasible is to only apply the remote access restriction to pro se cases. Attorneys representing taxpayers in the Tax Court should be able to do the redaction drill.
Other Coverage
Lew Tashoff, referring to our lunchtime discussion of this and other matters, in Judge Lauber Makes It Public – Hurrah!, which discusses an order to put the brakes on Coca-Cola keeping details of its litigation out of the public record, mourned:
OK, Judge Lauber lets us in on whatever the law allows.
All we have to do is surry down to the stoned soul picnic at 400 Second Street, NW, politely ask the clerk to open the voluminous file, and while away our idle hours reading. That is, those of us who don’t have day jobs.
Now if Tax Court were on the PACER system or equivalent, we could follow the advice of Ireland’s great poet and lengthen our days by stealing a few hours from the night, lighting the darkness with the glistering glow from our laptops, and paging through the night over that which Judge Lauber so painstakingly and scrupulously has excised and extracted for our edification.
But no. Tax Court’s lowly Article One online lips are sealed. Only orders, opinions and decisions are to be had on the world-wide web. As the Sweet Swan of Avon put it so well, “the rest is silence.”
Judge Lauber’s labor’s lost for the greatest majority of his fans.
So c’mon, Tax Court, let it all hang out. Put the backstories on line. Bankruptcy Court does, USDCs and CCAs do, why not you?
Waiting For The Other Shoe To Drop
Just a little note to my regular readers, who by now certainly number in the scores. I’m hanging fire on further posts on the Tax Cuts and Jobs Act until something passes both houses. Although the bills have a lot in common, what I think is most important from a planning perspective is the treatment of flow-through entities and the schemes that are racing through my mind are radically different for the House and Senate versions, so it is better to wait for the final word. And then there is the fond hope that the whole enterprise will crash and burn.
Update
Paul Streckfus covered this piece in EO Tax Journal 2017-41 (It’s behind a paywall). He writes:
Reilly does not mention in his article that the IRS Office of Chief Counsel is a collaborator with the Tax Court in keeping most cases secret. What we have in the Tax Court is a secret tribunal where most litigation never sees the light of day. We do see actual decisions by the Tax Court, but they are relatively few, since most cases, even the most significant, are settled out of court and leave no trace.
In effect, when it comes to tax litigation, the Tax Court and the IRS have effectively squashed public knowledge of tax litigation. Just the opposite occurs in U.S. district and circuit courts, where access to almost all documents is only a key stroke away. Under our judicial system, litigants give up their right to privacy when they go to court, except in rare cases under seal. The Tax Court and the IRS deny this right of public access and instead create secret tax law every day of the year, which should be offensive to all of us..
He also explained how to get the public documents from the Tax Court if you don’t want to go to Washington and lack minions in the capitol to go there for you. You call the clerk and say what documents interest you – best to have the docket number.
They will take your name and address and then call you in a few days to say they have the file and tell you how much it will cost to get what you want. I usually send them a check. I don’t know if paypal works or not. Once they receive your money, and only then, will they copy what you requested and then mail it to you. Usually a couple of weeks from start to finish.
Further Update
I heard from Edward Stringham a professor of economics at Trinity College and president of the American Institute of Economic Research.
Law and economics scholars who like to argue that government courts are transparent because they are open to public review, need to recognize that many government agencies actually don’t like transparency and actively seek to keep rulings that make them look bad in the shadows.